Log in to Connect and link to Chapter 26 to find a spreadsheet containing monthly values of the S&P 500 index. Suppose that in each month you had written an out-of-the-money put option on one unit of the index with an exercise price 5% lower than the current value of the index.

a. What would have been the average value of your gross monthly payouts on the puts over the 10-year period October 1977–September 1987? The standard deviation?

b. Now extend your sample by 1 month to include October 1987, and recalculate the average payout and standard deviation of the put-writing strategy.

c. What do you conclude about tail risk in naked put writing?